Turmoil has returned to the Chinese stock market as shares suffered their worst fall in eight years, knocking commodity prices and fuelling jitters among investors in London.

Following three weeks of relative calm, the Shanghai Composite Index plummeted on Monday, ending down 8.5% at 3725.56 – its worst fall since February 2007. Meanwhile the Shenzhen index dropped nearly 7.6% to close at 12493.05 points. Analysts predict more misery ahead for investors in the world’s second largest economy.

Xinhua, China’s official news agency, commemorated the latest crash in a tweet that read: “The return of the debacle!” Two-thirds of all companies listed on the Chinese mainland, or about 1,800 stocks, lost 10% of their value – the maximum daily limit – and were suspended.

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The latest nosedive also stoked wider fears about China, which have come to the fore recently with falls in the prices of commodities such as copper and gold. Copper prices tumbled to a six-year low on Monday as the latest slide in China’s stock markets reinforced gloomy prospects for demand in the world’s top consumer of the metal. Benchmark copper on the London Metal Exchange earlier fell nearly 2% to $5,164 a tonne on Monday. A crucial announcement from the US Federal Reserve on the potential prospects for interest rates was also weighing on sentiment.

The FTSE 100 index fell 1% and closed at 6,505 – below the 6,566 where it ended 2014 – and down on the high of 7,103 points it hit in April. The main indices in Germany and France were down more than 2.5%. The Dow Jones industrial average in New York was down 127.94 points, or 0.7%, to 17,440.59.

“Despite those recording breaking highs in the middle of April the FTSE is back at its 2015 starting point; the rampant optimism of the first few months of the year have all but been wiped out by the truly draining Greek saga and the embryonic crisis brewing in China,” said Connor Campbell, financial analyst at spreadbetter Spreadex.

In China, the state-run Beijing News quoted one spooked investor – named only as Mr Wang – who joked that Monday’s plunge was like “returning to the time before Liberation” in 1949. Rajiv Biswas, chief Asia economist for analysis firm IHS Global Insight, said the latest slump showed that Beijing’s attempts to stabilise the stock market following the recent collapse, including extending massive loans to buy shares, were not paying off.

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“The government has been trying to hold back the tide like King Canute,” he said. “This is now a stock market crisis and you can see from the responses that they have been making that they are not really sure how to address it. Today’s developments are just going to put this even more at the centre of their economic problems.”

The latest day of frenzied selling – which analysts said reflected weaker economic data out of China as well as a lack of confidence in Beijing’s response to ongoing stock market chaos – was a slap in the face for the country’s Communist party leaders. Beijing launched an unprecedented push to prop up the country’s stock market after a collapse that began in mid-June saw more than $3tn wiped off the value of listed companies.

But in a note following the latest slump, analysts at consultancy Capital Economics wrote: “The lesson from China’s last equity bubble is that, once sentiment has soured, policy interventions aimed at shoring up prices have only a short-lived effect.”

Biswas, the IHS economist, said Beijing’s attempts to turn the situation around by intervening in the stock market were doomed to fail.

“In my view they really have to now respond more forcefully with monetary and fiscal stimulus to try and get the economy on an upward track again. So instead of trying to address the stock market they need to address the real economy, which I think is the root problem right now that people perceive in China that the economy itself is struggling,” he said.

“You need to convince investors and consumers that the real economy is stabilising and is going to be improving. That has not happened yet. All the signals are convincing investors that the economy is on the way down and until that perception changes it is going to be very hard to put a floor under the stock market.”

Louis Tse, the director of Hong Kong’s VC Brokerage, told the South China Morning Post: “Sentiment among investors is quite poor. They’re selling stock to try to retrieve their money, especially from blue chips and in the A-share market when the Shanghai Composite reaches 4,000 points.”

Chinese investors took to social media to mourn their losses following the latest day of turmoil.

“People ask me how I feel about the fall,” one investor wrote on Weibo, China’s answer to Twitter. “I have only these few words – I am used to it.”

Another panicky investor wrote: “If you stay in the market, you will lose all your money. Pull out now even if it means losing some.”